Glanbia going for a treble at Gowran Park

6 Dec 2012

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Next week the final part of the jigsaw that is the Glanbia restructuring strategy will be put in place – that is if the shareholders in Glanbia Co-operative agree for a second time to reduce the Coop’s shareholding in Glanbia Plc to 41%.

Next week the final part of the jigsaw that is the Glanbia restructuring strategy will be put in place – that is if the shareholders in Glanbia Co-operative agree for a second time to reduce the Coop’s shareholding in Glanbia Plc to 41%.

That almost sounds like a double take since, last week, those same shareholders already agreed to that proposition. But such is the locking mechanism on this agricultural Co-operative that it takes two votes, each requiring a majority of 75% in each vote, to reduce below 50% it’s shareholding in the public company it set up over a decade and a half ago. A similar, if more far reaching, proposal was initiated two and a half years ago. It failed by a mere 2% to be agreed. That would have meant that the Co-op would only have retained a 10% shareholding in the Plc.

In retrospect the deal now nearing finality is a far better one even if some important elements of the business such as fresh milk sales, agri-trading and grain handling are being left with Glanbia Plc – at least for the time being. Since 2010 the Plc has almost doubled in value with the share price tipping €8 in recent weeks. Profitability has also improved and there is reason to believe that profit growth and increased scale through organic growth and acquisition will drive Glanbia Plc ahead in the coming years.

So what has the Co=op achieved – always assuming that the second vote is carried on the 12th of the 12th of 2012 (an auspicious date surely?). By taking a 60% majority stake in a Joint Venture with Glanbia Plc to run the Irish milk processing operations of the company the Coop is ensuring that the focus in that JV will move from maximising profitability to maximising milk price to the producer, at least within the confines of ensuring that the Joint Venture remains at all times a viable business with a reasonable annual profit target. In addition the Coop is making sure that the JV will be fully funded thus ensuring that the new business will be successful, especially as it embarks on a growth phase with the development of extra milk processing capacity through a €150 million investment at Bellview in south Kilkenny. Finally if shareholders endorse the new shareholding strategy on the 12/12/12 then all of those shareholders will receive shares in the Plc.

Still Holding The Reins

This share spin-out is important for a number of reasons. Firstly is returns some real wealth to all Coop shareholders who have supported Glanbia for many years with little realisable return in monetary terms until now. They can retain or sell those plc shares as they wish. This is in itself an important fact. A majority may well hold those shares for the longer terms hoping that Glanbia Plc shares will increase in value in the years ahead. That may happen though there are no guarantees when it comes to share investment. Historically, farmer shareholders in the Plc have tended to hold onto their shares.

If that remains the case then an interesting scenario develops. The Coop will still retain a 41% shareholding in the Plc. It is estimated that another 12% of Plc shares are held by Coop members on an individual basis. If even half of the spin-out shares are retained by Co-op members then the Coop, through it’s own shareholding as well as shares held individually by members, will effectively still own a majority of the Plc. The argument about majority control of the Plc was one of the most divisive in the recent debates among Coop members. The end result may well mean that the Coop and it’s members will still have a majority stake in the Plc that it originally set up while also taking control of Glanbia’s Irish milk processing assets, providing funding for processing expansion and releasing some wealth into the hands of Coop members. Not a bad day’s work, all in all, provided, of course, that 75% of those shareholders who return to Gowran Park next Wednesday, the 12th of December, decide to repeat the decision they made last week.

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